8 th April, 2020 To, Catalyst Trusteeship Limited GDA House, Plot No. 85, Bhusari Colony (Right), Paud Road, Pune, Maharashtra 411038 Dear Sir, Sub: Statutory Compliance Report of NCD’s for the quarter ended on 31 st March, 2020. Ref: Non-Convertible debentures (NCD) issued by the company. Kindly refer to the details of the Non-Convertible Debentures issued by the Bank and listed on BSE and outstanding as on the date, given below; SL. NO. Particulars of NCD Amount (in crores) ISIN 1 Listed Tier-II Bonds (NCD) 25 INE879Q08036 2 Listed Tier-II Bonds (NCD) 25 INE879Q08028 3 Listed Tier-II Bonds (NCD) 20 INE818W08016 4 Listed Tier-II Bonds (NCD) 20 INE818W08024 5 Listed Tier-II Bonds (NCD) 40 INE818W08032 In this regard, please find attached the following details and documents towards statutory compliance for the quarter ended 31 st March, 2020. 1. Updated list of the Debenture holders as on 31 st March, 2020 (as recorded in the beneficiary position statement i.e. BENPOS)- Annexure A. 2. Details of any due and unpaid interest and principal payments separately under each CL/ISIN and reasons thereof: NIL 3. Details of grievances received, resolved and unresolved from debenture holders for the quarter ended on 31 st March, 2020- Annexure B 4. A Statement ensuring that the assets of the company issuing debentures and of the guarantors, if any, are sufficient to discharge the interest and principal amount at all times that such assets are free from any other encumbrances except those which are specifically agreed to by the debenture holders (certificate from a practicing Chartered Accountant supporting the security cover certificate)- Not Applicable as all the
35
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April, 2020 To, Paud Road, Pune, Maharashtra …...2020/03/31 · PRATEEK SRIVASTAVA NO 17, WATERWOODS RAMAGONDANAHAL LI WHITEFIELD VARTHUR MAIN ROAD BANGALORE INDIA 560066 1.00 INE879Q08036
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ESAF SMALL FINANCE BANK LIMITEDRBI License No.: MUM 124. CIN: U65990KL2016PLC04S669Registered & Corporate Office: ESAF Smalt Finance Bank Limited. Building No. VII/83/8, ESAF Bhavan.Mannuthy. Thrissur - Palakkad National Highway. Thrissur - 680 651, Kerala.Ph. No: 04877123456.123457, Email: [email protected] www.esafbank.com
CdmpanyijecretaryMembership No: A 30388
Yours Faithfully,
For ESAF Small Finance Bank Limited,
Enclosed herewith the rating letter issued by CARE Ratings for your reference.
We request you to kindly take the above documents on record.
Thanking you,
Reaffirmed
Rating Action
CARE A; Stable (Single A;Outlook: Stable)
Rating
125.00 ..
Amount (Rs. Crore)
Tier II Bond issue
['.) Facilities
Dear Sir/Madam,,. '
Subject: Intimation of Reaffirmation of Credit Rating
We hereby intimate that CARE Ratings via letter dated March 02, 2020, as part of annualrating surveillance exercise has reaffirmed the credit Rating of the Bank's Non-Convertible
Debentures (NCDs) and the details of the same are as follows:
To,
The Catalyst Trusteeship LimitedOffice No. 83 - 87, 8th floor,'Mittal Tower', 'B' Wing,Nariman Point, Mumbai - 400021Maharashtra
10th March, 2020
ESAF SMALL FINANCE BANKJoy of Banking
ESAFTT
Unit Mo. O-509/C, Spencer Plaza, 5th Floor,No. 769, Anna Salal, Chennai - 600 002.
DisclaimerCARE's ratings are opinions on the likelihood of timely payment of the obligations under the ratedinstrument and are not recommendations to sanction, renew, disburse or recall the concerned bank facilitiesor to buy, sell or hold any security. CARE's ratings do not convey suitability or price for the investor. CARE'sratings do not constitute an audit on the rated entity. CARE has based its ratings/outlooks on informationobtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee theaccuracy, adequacy or completeness of any information and is not responsible for any errors or omissions orfor the results obtained from the use of such information. Most entities whose bank facilities/instrumentsare rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments.CARE or its subsidiaries/associates may also have other commercial transactions with the entity. In case ofpartnership/proprietary concerns, the rating /outlook assigned by CARE is, inter-alia, based on the capitaldeployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlookmay undergo change in case of withdrawal of capital or the unsecured loans brought in by thepartners/proprietor in addition to the financial performance and other relevant factors. CARE is notresponsible for any errors and states that it has no financial liability whatsoever to the users of CARE'srating.
CARE's ratings do not factor in any rating related trigger clauses as per the terms of the facility/instrument,which may involve acceleration of payments in case of rating downgrades. However, if any such clauses areintroduced and if triggered, the ratings may see volatility and sharp downgrades.•
^Complete definition of:}he: fatings assigned are available at -wivw.careraiings.cnm rind other CARE.;publications -.-.
u
Details of instruments/facilities in Annexure-1
Detailed Rationale & key Rating Drivers
The ratings assigned to the debt instruments and certificate of deposits of ESAF Snialt: Finance Bank Ltd
:.(ESAF:SFB): factors in comfortabiecapitaiisatipn profile arid growth in overall business of the bank and
jmprpying profitability: during FY19(refers to the period April 01 to March 31} and HlFY20(refers to. the
: period April;Q1 ,to Septembe^r 3P}^ The ratings cpptinue to factor, in experience of the prompter &
managemehtteamin thef ending busihess,; the grbup^s significant-experience in microfifiance loans and-
: comfortable liquidity ^osition. The ratings are; however, constrained by regionallyxoncentrated nature of
business, limited diversification in loan portfolio which mainly consistsof micro finance loans^.
The ratings^assigned to the long-term bank facilities is withdrawn with immediate effect, as the bank has -
fully repaidtheamountupdef the said facility end there ^s noemount dutstahdirtg asbn date^
Rating -Sehsitiuiti^s.'Positive factors.--..
* Increase the seaie of operations across newef geographies and 1 mprove. product mix of advancesbook while maintaining good asset quality op: a sustaihed;basis
Negative Factors
*'•• Weakening of asset quality on sustained basis•; :Weakening of capital adequacyvyithCAR.deciiningbelovv 17% dn.a sustained basis:;
Withdrawn
Reaffirmed
Reaffirmed
Rating Action
CAREA1+: (A One plus)
: CARE A; Stable{Single A; Outlook:,: Stable);^ ::
Rating2
•] ' 5DQ.0C! :
••'•: 125:00 [••• •
Amount(Rs. crore) :
Long term Bank Facilities
Certificate of Deposits:{Proposed)
Tier IIBond issue
Facilities
Ratings
Annexure
Press Release
ESAF Small Finance Bank
Detailecfdescrjptipn of the key rating drivers :::': .•/'Key Rating Strengths
Experiencep)'promoter pnd rharipgement team: ES^F SEB.was promoted by Mr. % Paul Thornas, who is
^thefounder of ESAFgrOupand holds 7.3% stake in ESAFSFS as on December?!, 2019, He has over 32
years of industry Experience, of which more.than 22years arein the rrticrofinahce sector. Fie is supported
by well,qualified:and experienced management team which has rich experience in the ^anking and
financial services sector; The bank has been augmenting its senior management team by recruiting
prpfessionals-frpm the banking and financial sector. As on December.31, 2019, the bank's board
comprised of/Eight Directors including .five[Independent directors.who have.rich: experience in ^anking
^and financial services Industry.;'::
Comfortable capitalisation levels: The bank's! capitalisation profile is comfortable supported by the
capita! infusion: of Rs:464 crore through private placement of equit^ .sharps during September 2018. Ason
March 31, 2019, the CAR and Tier I ratiostoadat.27.S9%and;23.30% respectively (25.69%and 21^9% as
on September 30i 2019) as against; 16-92% and: 12.40% as onMarchSl, 2018.
Improvement in advances/however share of MFl loans continues to be high: ESAF SF.B's AUM improved
: by 22% during^FYlS and stood at Rs.5,060 croreas on March 31; 20,19 (py:Rs.4il31 crore)and during
HlFY20y AUM impfoved: by 10% and. stood at Rs.5,559 crore :as on September 30, 2019^ Post transition to
,.SFB, ESAFSFB has introduced nev/ products like: LAP (Loamagainst Property), business loans,, corporate
loans, gold Joan, etc. Nevertheless, the microflnanceloan book stood at 97% pf.the.AUM as.on March 31,
:2019^^96%<bffheAUM aSonSeptember 30, 2019):as against 98%cif the AUM of the totalAUM as on
March 31,. 2018^
Significant growth inp^posits with improvement in granularity; The bank's total borrowing increased, to
Rs.6,019:crore:asrin.;iyiarch.31,2ai9(Rs-7,401 crore as on SeptemberSO, 2019) as agairistRs. 5,240 cf ore
as oh March 31, 2018, The bank's borrowing orofile majqrlyrCdmprisediof deposits, loans from other
institutions and sub-debts at 72%, 23% and 3% respectively as on March 31, 2P19(PY;60%; 24% and 11%).
As on September 30/2019, the share (as a % of total borrowings) of deposits.loans from other institutions
and sub-debt stood at 82%, 15% and 3% respectively. The tbfal deposits:gfev^,by 71% during FY19'and
stood^ at Rs.4,317 crore as on March 31, 2019 (PY: Rs.2,523 crore). During H1FY20, deposits grew by 40%
and stood at Rs. 6,063 crore as on September 30, 2019 Due to significant growth in deposits, the CD ratio
of thebankJmproyedrtpipSrtimesas on March 31, 2019{89%:a?^ohSeptember3P, 2019}as against 125
timesas on Marih 31,2018.
The bank's.term deposits are also ;granular in nature with 89% of the total termdeposits below the ticket
size of Rs. 1.0 crore as on March 31,2019 (88% as on September 30,2019) as against;56% as on March 31,
2018. The bank's GASA (as % total deposits) has also, improved to 14%: in March 31, 2019(12% in
September 30,2019) from 10% in March 31,2018.
improving asset quality indicators but risks associated with marginal credit profile of borrowers
continues; The bank improved its collections and recovery mechanisms and the collection efficiency
stood at90%;fprFY19:(PY: 96%) and. has improved fo 97% forHlFY^O though the bank was impacted by
Kerala floods and collection efficiency declined to 75% during August-2018. Duripg FV),9, the bank written
off its loans to the extent of Rs.89.4 crore and the asset quality, indicatorsiof the.bankhas improved with
gross NPA and Net NPA stood at 1.61% and 0.77% respectively as on March 31, 2019 (1.76% and 0,62% as
on September 30, 2019) as against 3.79% and- 2.69% as on March 31, 2018. it is critical for thebank to
maintain its asset quality indicators at current levels due to credit risks associated with marginal credit
profile of borrowers (share of mterqfinahce loans stood af 96% of the-AUM as on September 30, 2019)
who are vulrierable'to adverse economic Cycles.
Improving;pro^^tability metrks-.Mi^ SFB's profitability improved during FY19, PAT stood at Rs.90 crore
on a total income of Rs;l)14l crore in FY19 as against PAT at Rs.27 crore on a total income of Rs.699.crore
in FY18, During FY19, theyield on advances (as a% of average interest earning assets) improved to 23.75%
(PYi23.15%) and the cost of bbrrbwings(as a % of average interest bearing liabilities) declined to 8,97% in
FY19(PY:9,45%) thereby improvement in NIM at 9.75% in FY19 (PY:7.32%). Tlie^operating expenses (as a %
of average total assets) have •slightly improved to 7.71%1n FY.i-9 (PY: 7,90%), Credit costs (as: % average
total assets) hasincreased to 1,99% in FY19 from 0.92% in FYi8^ ROTA has improved to i.53% irt FY19 as
agaih5t0.70%in FY18 supported:^ by Improvementin NIM, During HlFY20,,RAT stood at Rs.91.crore on a
total income of :Rsi729 crpre. During ^1FY20, operating expenses:(as a % of average total assets) ratio
improved to:7.21% as,against 7;71% in FYi9 and credit costs (as.a %of average total: assets) improved, to
1;55% in H1FY20 as against 1.99% in FY19 and.aided; in improving the profitability indicators. ROTA for
:H1F,Y2O stood at 2.36% (no tax expenses were incurred).:
Key Rating Weaknesses. Regional concentration of loan portfolio continues: ESAF SFB'SAUM continues to remain concentrated: in
Kerala at 53% as oh September 30,2019, The toptwostates constitutes:81%of the overall portfolioas on
March 31, 2019 (PY:8i%), Howeverj the bank has taken.initiatiyes to reduce^he concentration, AUM in.
Kerala declined to 52% as on March 31, 2019 from 59% as on March'31, 2Q19,through establishment of
branches and expansion of portfolio across newer states. The bankhas improved its presence to 12 states
7
Policy on Withdrawal: of ratings: • 'y
About the Company\\ESAF Small Finance.Bank Limited (ESAF SFB) is: a: Kerala basedySmall Finance, Bank; (SFB).which has|
commenced its banking operations on March 10,: 2017. The bank was promoted by Mr, K. Paul ThomasI!•• : •-• ••'.;..-• • ••• •:•-.••. ..: . - ••:•;,... :•:.. .::^:.: .i
which is a part of Kerala based ESAF group: operating in Micrpfinance space from 199S and set up ESAF|
Insurance: 4,99%, Muthoot Finance:Ltd.4,38%, Bajaj Allianz Life Insurance Company 4.08%, Pi Ventures.p: .'' ' " ....^^2,04%, ICICI Lprnbard General Insurance Company held 1.46% and individual investbrshold the remaining.|
As on September 30, 2019, the bank has 332; branches across 153 districts; in 17 states of India with|;..•.••. . . ' •^
deposits of Rs;6,O63 crote and AUM of Rs.5,559 crore,I
as on March 31; 2019 as against. 10 states as on March 31,j 2018 and further to 17 stat^s.across .322
branches as on September 30,2019. :[".-'.'••
Liquidity. Adequate. : : .As per structural liquidity state^ent of.the bank as on December 31, 2019,: the bank does not have
negative cumulative mismatches up to 1 year time bucket, Aiso, the liquidity Coverage Ratio (LCR) stood
comfortable at 507.02% as on September 30, 2019. In addition, the bank had excess SLR investments of
Rs.166 crore: as on S^ptember 30,; 2019 which remained favourable from the liquidity perspective.
Analytical approach: Standalone
Applicabl^ Criteria; .:i.:.Criteria on assigning Outlook and Credit watch to Credit Ratings.
' Bank ^Rstittft^framewqrkior.Basel til instruments {Tier I & Tier II).
Disclaimer
CARE's ratings are opinions dri the likelihood of timely payment of the obligations under the ratedinstrument arid afefnOt recommendations to sanction, renew, disburse or. recall the concerned bankfacilities Or tp buy,: sell or hold any security. CARE's ratings do riot convey suitability or price for the'investor;: CARE's ratings .do riot constitute an::audit o^ the : rated entity- CARE has . based. itsratings/putiooks on, information obtained from sources believed by it to be accurate and reliable. CARE
doesnot,.however, guarantee the accura^y, adequacy:or completeness of any information and.is notresponsible for any errorsoromissions or for the results Obtained from the useipfisuch Information. Mostentities whose bank facilities/iristmmenfs are ratedJby CARE have paid a credit* fating fee, based on the
• amount arid, type of bank facilities/instruments. CARE or Its subsidiafies/associates rirfay: also.haye:other
A: Audited
Status of non-cooperation with previous CRA: Not Applicable
Any other information; Not Applicable
Rating History fpr last:three years: Please refer Annexure-2
Analyst Contact
Mr^Sudhakar: .Contact ho.-04^285010010;-•' •
: Email: p.sudHakar^careraflngs.com,":
About CARERafings:
•CARE Ratings commenced: operations.in:April 1993'and.over two:decades, .it has established itself as one of theleading credit rating agencies in India. CARE is registered with the Securities and Exchange Boarded India. {SEBjJ andalso recognized as an External Credit Assessment Institution (ECAl) by the Reserve Bank of India (RBI). CARE Ratings is
•prayd of.its rightfuiplace^in. the .̂ ndian capital market built around investor confidence;:CARE Ratings provides theentire spectrumfof credit^ rating thathelps. the cdrporates. to raise capital for their various requirements and assiststhe investors to forrri .an informed; investment decision based on. the: credit. risk; and their own. risk-returnexpectations. .Qur ratingand grading service.offeffngslaverage our domain, andianatytical. expertise backed by. the
.methodplpgies^ongruenf with the. international best practices.
1.53. 1
0.77
7,052
1:50
90
yy- .; .1,141
• . 0.70
,'•':'• ' ' 2.69,
4,714
1.25
•27:
• •••••^••• 659
ROTA(%) ;
NetNPA(%)
Total Assets
interest coverage (times) •••
: PAT
Total operating income
FY19 {A}F/J3(A)P.-'ef Rnarcids (Rs. crors)
U
p
10• -
1JCAREA1(lS-Feb-17);
1)CARE A-;StablefO2-Feb-17)2)CAREA- >[04-NOV-16)'
1JCARE A-;Stable[02-Feb-17)2)CAREA-(04-NOV-16)-
Date{s) &Rating{s)
assigned in2016-2017
1JCAREA-;
1)CAREA1{Ol^Dec-17)
ijWithdrawn{Ol-Dec-17}-
DCARE A-;Negative(01-Dec-17J..
Date(s) &; Rating(s)assigned In 2017-
2018
1JCAREA;
1)CAREA;,Stable,(2S-Jan-19)
Date(s)&Ratlhgfs)
assigned in2018-2019
•'
Pate{sJ8kRating{s);
assignedin2019^2020
Rating history
CARE A;
Rating
125.00- :LT
sr j: • -
'••{•.
AmountOutstanding
(Rs-crore)
.IT
:.lt.
TypeCurrent Ratings:
Bonds-Tiet It: Bonds^
Commercial Paper
Fund-based-if-Cash
Credit.
:und-based - LT^TerrpLoan
Name of the ;Instrument/Bank
Facilities
i."4.
|3^i :'
1.
2.
Sr.No.
AnneKure-2; Rating History of last three years
CARE A1+
CAREA;Stable
CARE A; :Stable
CARE A;•Stable
CARE A;Stable..
Ratingassigned
along withRating
Outlook
.500,00- ;',
'45.00,
40.00
'20.00 7
2o.qo :
Size ofthe Issue
7 :(W7;crore)
-
0l-Junr2025
28-Mar-2025 :
30-Dec-2024:
MaturityDate: ;
-
11.50% .
11.50%
10.50% ;
'• COUPQ :
: nRate :
-
Ol-Jun-2018
28^Mar-2018
30-Dec-2017. ...
Date of !Issuance
:.
INE818W08032
INE818W08024
INE818W08016
iSIN
Certificate of;:Deppsit^:': •;
{Proposed);
Tier H BondsjPropdsedj
Tier II Bonds
Tier II Bonds
Tier 11 Bonds
Name of theInstrument
AnneKure-1: Details of Instruments/Facilities
comrherciaTtransactiohs with the entity, incasedfpartnership/proprietaryconcerns, the rating /outlook: assigned by C^RE is^ inter-aiia^ based on thecapitaj deployed by the partners/proprietor and the financialstrehgthpf th^'firrn at, present, the rating/outlook may undergo change in case of withdrawal of capital orthe unsecured loans brought in by the partners/proprietor in addition to the financial performance andotherreleyantfactprs. CARE is not responsible for; any, errors and states that it has no financial liabilitywhatsoever to the usersbf CARE' stating,.'. -,• •.
CARE's .ratings;.do: not factor, in any: rating related trigger clauses as per the: terms of thefacility/instrument, which may involve acceleration of payments in case of rating downgrades. However, ifany such clauses are introduced and if triggered, the ratings may see volatility and sharp downgrades.
"•. , \: • :̂••••" .':•
•11-
Note on complexity levels of We rated ihstrum^complexity. This classification Is available at www.careraiings.cqm. Investors/market intermediaries/regulators orothers ore welcome to writeno care@corerotirigs;comjbr'-any clarifications. •'•
Date(s) aRating(s)
assigned in2016-2017
Negative : ;(Ol-Dec-17) ;
Oate{s} &: Rating{sJ
assigned in 2017-2018
1)CARE A1+[12-Mar-19)
Stable : . •(25-Jah-i9).
Date(s)&Ratihg(s)
assigned in2018-2019
Date(s) &Rating(s}
assigned in2019-2020
Rating history
CAREA1+
Stable
Sating
500^00
AmountOutstanding
: {Rs. crore)
ST*
TypeCurrent Ratings;
Certificate^f Deposit
Name of theInstrument/Bank
Facilities
St.No.
Unit No. 0-S09/C, Spencer Plaaa, 5th Floor,No. 769. Anna Salal, Chennal - 600 002.
Please refer to our letterdated March 2, 2020 on the.above subject.^ '.-'••'.
2.The rationalefor the rating is attached as an AnneKure-1, : :
3.Werequest youto peruse the annexed documents and offer your comments,^ if any. We are doing this as a matter of courtesy to our clients and with a. view to ensure that no factual inaccuracies have inadvertently crept in. Kindly
revert as early as possible, in any case, if.we do not hear from you byMarch 4, 2020; we wiI.I proceed oh the, basis that you have no comments to
' • offer. ""• '•• '•••.-.' \> -
If you have any further clarifications, you are welcometo approach us.
THankingyqu,^ ;;."•:•'/.Yours faithfully,
: •;•.;.RaviShankar R
-.:;: ^;Manager
Credit ratine of debt instruments
DearSir,
March2,2020
Professional Risk Opinionr:--.]
CARE/CRQ/RR/2019-20/il52
; Mr. K Paul Thoma^T Managing Director & CEO
ESAF Small Finance Bank Limited: •;^ .: E5A.F BhaYan, Mann.uthy P.O., :; :.-;'•'••'. ifhrissur, Kerala -. 68G 651
'Complete definition of the ratings assigned are av.ailabie.al nnnkcareratinqs.com and other.CAREpublications '•'"•...:
Details ofinstrumeriis/faciliiiesiriAnnexure!'l
Detailed Rationale & Key Rating Drivers
The ratings:assigned;to the,debt;instruments andfCprtifiesteof deposits,ofE^A^SmalJ Financq. Rank
Ltd (ESAF SFB) factors in comfortable capitalisation profile and growth in overall business of the bank
and improving profitability during FY19(refers to the period April Oltd March 31) and:HlFY20(refers
to the period April 01 to September 30). The ratings continue to factor in experience of the promoter
& management team in the lending business, the group's significant experience in microfinance loans
and comfortable liquidity position. The ratings are, however, constrained by regionally concentrated
nature of business,'-. limited diversification in loan portfolio which, mainly consists of micro finance
loans,.
Theratings assigned to the Ipqg-term bank facilities is withdrawn with immediate effect,; as the bank
has fully repaid the amount under the said facility and there is no amount outstanding as on date.
Ratine Sensitivities.Positive Factors •;
*• increase the scale of ^operations across.newer geographies; and improve product mix ofadvances book while maintaining good asset quality oh a sustained basis
, Negative Factors.. •••'•.
• : Weakening of:assetquality.qn, sustained: basis:weakenitig of :capitai;a.dequacy with CAR^deciining below 17S6 on a sustained basis
Detailed description of the key rating drivers
Experience of promoter and management team: E5AFSFB was promoted by.Mr, K Paul Thomas, who
is the founder.of; ESAF;,:group: and holds 7,3%-stake, in ESAF SFBaso.n. pe,cember,31,: 201.9. He has over
32 years, of industry experience,, of which.more than.22 years are.Jn the microfinance sector, He is
Withdrawn
Reaffirmed
Reaffirmed
Rating Action
-
: CAREA1+(AOne Plus)
CARE A; Stable(Single A; Outlook:
Stable)
Rating1
-
500.00
125.00
Amount •;"••\ (Rs. crore) •
Long term Bank:Facilities::
Certificate of Deposits{Proposed) :;
"Tier UBcjnd issue
Facilities
Ratings
Annexttre-I
'Rating Ra^ionale;
ESAF Small Finance Bank
supported, by well qualified arid experienced management team which has. rich experience in the'
banking and financial services/sector. The bank.hasbeeri augmenting its senior management team:by
recruiting professionals from the banking and financial'sector. As on December 31, 2019, the bank's,
board comprised of eight- Directors including fivetndependent directors,who have rich experience in
banking and financialservices industry.
Comfortable capitalisation levels: The bank's capitalisation profile is comfortable.supported by the
capital infusion of Rs^64 crore through private placement of equity shares during September 2018.
As on March 31, 2019, the GAR and Tier! ratio stood at 27,59% and 23.30%' respectively (25.69% and
21.99% as on September 3.0,' 2019) as against 16.92% and 12,40% as on March 31,2018.
Improvement in advances, however share of MFI loans continues to be high: ESAF SFB's AUM
improved by 22% during FY19 arid stood at Rs.S,060 crore as on March 31, 2019 (PY:Rs.4,131 crore}
and during H1FY20, AUM improved by 10% arid stood at Rs.5,559crore. as on September 30, 2019.
Post: transition to SFB;.SAF SFB: has introduced: new products, like LAP .^Loan against Property),
: business loans, corporate loans, gold! loam etc Nevertheless, .theimicrofinance loan book stood at
97% of the.AUM as oh March 31, 2019 (96% of the AUM as on September 30, 2019) as against 98% of
the AUMof the total AUM as oh March 31, 2018.
Significant growth ip: Peposits with improvement in granularity:. The bank's tote) borrowing
increased to Rs:6,019;crore d^ on March 31. 2Gi.9(Rs,7,4Ql, crpre-as^pn September 30, 2019 } as
against Rs. 5,240 crore as on March 31, 2018. The bank's borrowing profile majorly comprised of
: deposits, loans from,other Institutions and sub-debts at 72%, 23%and 3% respectively as on March
31, 2019(P.Y:60%, 24%: and 11%). As;on September 30, 2019, the share (as a % of total borrowings), of
deposits, loans from other institutions and sub-debt stood at 82%, 15% and 3%. respectively. The total
deposits grew by 71% during FY19 arid stood at Rs.4,317,crore as on March 31, 2019 (PY: Rs.2,523
crore). During H1FY20, deposits;grew by 40% and stood at Rs. 6,063 crore as on September 30, 2019,
Due tdsignificant growth in deposits, theOb ratio of the bank improved to 105 times as on March 31,
2019(89% as on September 30,2019) as against 125 times ason March 31,2018.:
The bank's term deposits are also granular in. nature with 89% of the; total term deposits below the
ticket size of Rs.i.0croreas on March 31, 2019 (88% as on September 30,2019) as against 56% as on
•Marth. 31, 2018riThe banks GASA (as i^^total .deposits):'has: also improved to 14% :ip March 31,
About the CompanyESA^Small Finance Bank Limited (ESAF SFB) is^a: Kerala based Small Finance. Bank. (SFB) which has
commenced its banking operations on.March 10, 2017. The bank was promoted by Mr. K. Paul
Thomas which is a part of Ke.raia based. ESAF grbtip operating in Microfinance space from 1995:and
set up ESAF Micrpfmance & investments Pvt. Limited (EMFfL) in.2007. EMFIL subsequently got SFB
license arid started its banking operations from March 2017 onwards, ESAFSF Bis currently focused in
retail banking business with presence in micro-finance, housing finance, business loansjoan against
property (LAP), gold loans'.andrproviding financing solutions for marginal customers who lack access
to the formal banking and financing channels while providing a comprehensive banking and digital
platform for all.:
The bank received Scheduled status from RBI.on December 27, 2018. As-on December 31, 2019, ESAF
Fi^ancial Holdings Private Limited held 65.63% of the shareholding in ESAF SFB while Mr, Paul Thomas
holding 7,29%, ESAF Swasraya Muti state Agro Co^- operative Society Ltd 4.99%, PNB. Metiife India
: Insurance: 439%, Muthoot Finance Ltd 438%, Bajaj Allianz Life insurance Company 4.08%, PI
Ventures 2.04%, iCICI Lombard General insurance Company held 1.46^ and individual investors.hold
the remaining. As on September 30,2019,.the.bank has 332 branches across 153 districts in 17 states
:pf Ipdia with: depositsof Rs:6,06;3 crore:and AUM of Rs.5,559 crore.
:• Bank:-C^RE^-Ratirig.Methdc^Qiogy^fo^ Banks ,':iank;-iRatiM framework 'for Bas^l til inl^ftimehts: (TferT& Tier II).Criteria^ for :5hort term: instruments • .
Policy on Withdrawal of ratings
Disclaimer
CARE's ratings are opinions on the likelihood of timely payment of the obligationsunder tHe: rated; instrument and are not recommendations to sanction^ renew,
disburse or recall; the concemed^ank facilities or to buy, sell or hold any security.CARE's ratings do not convey suitability or price for the investor. CARE's ratings donot constitute an audit on the rated entity. CARE has based its ratings/outlooks oninfprroatipiT obtained frorri sources believed by it td be accurate and reliable. CAREdoes not, ,however, guarantee the accuracy, adequacy or completeness of any
About CARE Ratings:
•CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of theleading credit rating agencies in. India', CARE is; registered with the Securitiesend Exchange Board of India (SEBI)
"and also:recognhed as ap ExteofaLCredit Assessment Institution fECAl) by the Reserve.Bank of India {RBI). CARE: Ratings-it proud of.its.rightful place In the Indian; capita! market built around investor confidence; CARE Ratings
provides the .entire; spectrum, of. credit rating .that,,helps the corporates-to^raiseicapital for their variousrequirements; and assists.the investors to form an informed investment, decision based on the .'credit risk andtheir o\vn risk-return expectations. Our rating and.grading service offerings leverage our domain and analyticalexpertise backed by the methodologies.congruent with the international best practices,.
A: Audited;:"Thephancio!s. afSFB and MFfis eoiisolidated
Status of non-cooperation with previous CRA: Not Applicable
Any other information: Not Applicable
Rating History for last three years: Please refer Annexure^
Note on complexity levels of the rated instrument: CARE has classified, instruments rated by It on the basis ofcomplexity: This ciassificotion is available at www.careratings. com: Investors/market in termediaries/regulators orothers.are welcome to write to core&careratings.com for any clarifications.
IntereStSpreadNet Interest Margin-(NIMjOperational Expenses / Ayg Total.AssetsReturn on total assets
TieturnoonetworthSolvent
Capital Adequacy;RatiqTier I Capital Adequacy RatioCredit/Deposit ratio ;
Asset QualityGross NPA to Gross Advances (%)Net NPA to Net Advances (%)NetNPA to Tangible:Networth(%)
information and is not responsible for any errors or omissions or for the resultsobtained from the use of such information. Most entities whose bankfacilities/instruments are rated by CARE have paid a credit rating fee^ based on theamount and type of bank facilities/instruments. CARE or its subsidiaries/associatesmay also have other commercial transactions with the entity. In case ofpartnership/proprietary concerns, the rating /outlook assigned by CARE is,; inter^alia,based on the capital deployed by the partners/proprietor and the financial strengthof the firm at present. The rating/outlook.rnay undergo change in case of withdrawalof capital pr the unsecured loansbrpught.in by the partners/proprietor in addition tothe financial p^rformance and other relev^nt factors.iCAjfi'E is not responsible for anyerrors and states that it has no financial liability whatsoever to the users of CARE'Srating, •• ;;:' "
CARE^s ratings do not factor in any rating related trigger clauses as per the terms ofthe facility/instrument, which may Involve acceleration of payments in case of ratingdowngrades. However, if any such clauses are introduced and if triggered, theratings maiy see volatility and sharp downgrades...; •. ______' - -'
1)CAREA115-Feb-17j
1)CARE A-;.StableO2-Feb-17j
2JCARE A-04-Nov-ie)
1JCAREA-; jStable :' j02-Feb-17)
2JCAREA-04-NOV-16)
Date(s) &Rating(s)
assigned in2016-2017
1JCARE A-;Negative(Ol-Dec-17)
UCAREA1[01-Dec-l7)
l)Withdrawn(01:Dec-17)
1)CARE A-;^iegattyeOl-Dec-i?)
Date(s) &Rating(s)
assigned in 2017-
2018
1JCARE Al^.(12-Mar-19)
1JCARE A;Stable(25-Jan-19)
1)GAREA; :Stable^ :
(25-jan-19)
Date(s) &Rating(s)
assigned in2018-2019
CARE . 1 -•.Al+ |
Date(sj&Rating(s)
assigned in2019-2020
Rating history
CARE A;Stable
Rating
500.00 .. •;
125.00
AmountOutstanding
(Rs. crore)
: ST
LT
. ST
: LT .
V.LT ;;
Type
::':: Current Ratings
Certificate Of Deposit
Bonds-Tier 11 Bonds
Commercial: Paper:
F und-based - LT-Gash:Credit
Fund-based -.LTTterm.Loan
: Nahjedfthe ;Instrument/Bank
Facilities
5.
:4.
3^
2.
i;
Sr.No.
Annexure-2: Rating History of last three years
CAREA1+
CARE A;Stable
CARE A;Stable
CARE A;Stable
CARE A;Stable
Rating; assigned
along withRating
Outlook
500.00
45:00 " :
40.00
20.00 :
20.00 .
Size of the::. • .ISSUte^. ;.;.
(Rs.crore)
Ol-jun-2025
28-Mar-.2Q25:: .
30-0ec-2024 ^
Maturity:...;:pate;-; .
11.50%
11:50%
10:50%
Coupon•' '•>:^ater • ..
- •., •
Ol-Jun-2018
28-Mar-2018
30-Dec-2017
DateofIssuance
INE818WG8032
1NE818W0S0M
INE818W08di6
ISIN^etails of Instruments/Facilities:
Certificateof Deposits(Proposed)
Tier 11Bonds ;(Proposed} ;•
Tier IIBonds
TierflBonds
Tier II .Bonds.
'•• Name of•*!!•' •:
Instruments
Anriexure-1: X
RATING RATIONALE 18 Mar 2020
ESAF Small Finance Bank Ltd
Brickwork Ratings Reaffirms the ratings for the Non-Convertible Debentures of ₹. 50 Crores and withdraws the ratings for the Bank Loan Facilities of Rs 342.11 Crs of ESAF Small Finance Bank Ltd [hereafter referred to as ESAF SFB or the “Bank”]
Particulars:
Facility**
Amount (₹ Cr)
Tenure
Rating*
Previous Present Previous (Feb, 2019) Present
Unsecured NCD 50 50 Long Term
BWR A (Stable)
BWR A (Stable)
Fund based 342.11 - Long Term BWR A (Stable)
Withdrawn
Total 392.11 50 INR Fifty Crores Only
*Please refer to BWR website www.brickworkratings.com/ for definition of the ratings ** Details of NCD is provided in Annexure-I RATING ACTION / OUTLOOK The rating reaffirmation factors, inter alia, ESAF’s stable business growth with established presence in microfinance loans through MFI branches, improved profitability and adequate capitalization. However, the rating is constrained by the limited diversification of the portfolio and regionally concentrated operations.
Rating Outlook: Stable
BWR believes the ESAF Small Finance Bank Limited’s business risk profile will be maintained over the medium term. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term.
● Stable business growth: ESFBL currently operates in 17 states with 454 branches and
208 ATMs and has plans to further expand the branches across India. For the nine months ended December 31,2019 total business grew by ~59% year-on-year(y-o-y) to Rs 12,516 Crs as total advances grew by ~38% year-on-year(y-o-y) to Rs 6,045 Crs and total deposits grew by ~87% to Rs 6,471 Crs. Current & savings accounts (CASA) ratio, stood at 12.67% as on December 31, 2019 (12.60% as on March 31,2019) remains much lower than industry levels.
● Adequate capitalisation: In FY19, the bank raised capital of Rs 464 Crs from various
institutional investors resulting in increase in reported Networth to Rs 894 Crs as on March 31, 2019. It further increased to Rs 1,030 Crs by end of December 2019 due to retention of profits resulting in an adequate capital position with total regulatory capital adequacy ratio (CRAR) of 23.43% and Tier I CRAR of 20.17%. The bank’s ability to continue to raise capital during the current fiscal to sustain business growth will be a key rating monitorable.
● Improved profitability: ESAF’s profitability improved in FY19 with profit after tax
(PAT) increasing to Rs 90 Crs for FY19 from Rs 27 Crs in FY18 mainly due to decrease in borrowing costs and cost of deposits thereby resulting in improved net interest margin (NIM) from 8.65% in FY18 to 10.65% in FY19. Return on assets (ROA) & return on Networth (RONW) also improved from 0.72% & 9.33% in FY18 to 1.52% & 13.86% respectively in FY19. For 9MFY20, Bank’s profitability further improved with PAT of Rs 136 Crs on the back of good business growth. The bank’s ability to continue to maintain its operating profitability and manage provisioning costs will remain a key monitorable.
Credit Risks:
● Regional Concentration of operations: As on 31 Dec 2019, the bank operates in 17
states with 454 branches. ~84% of gross loan portfolio is concentrated in southern states with Kerala accounting for 53% of total portfolio, TamilNadu accounting for 27.19% and Karnataka accounting for 3.17%. The bank plans to diversify geographically in next 2-3 years by opening more branches outside Kerala which will help them to reduce the geographical concentration.
www.brickworkratings.com Page 2 of 6
● Limited diversification of portfolio: Microfinance loans contribute to ~97% of the total AUM (against 98% of the total AUM as on March 31, 2018) and hence is concentrated. Bank has introduced new loans like Home loans, Two-Wheeler loans, Gold loans and Agri - MSME loans to address the issue. Going forward, the company’s ability to build a non-MFI portfolio will be a key rating sensitivity.
ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA BWR has considered the standalone financial profile of the bank and has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale). RATING SENSITIVITIES Positive: Ability to raise capital to support profitable business growth, geography and product diversification, improvement in resource profile and manage asset quality from any further deterioration will be key rating positives. Negative: Non achievement of the projected financial performance, deterioration in asset quality and its impact on profitability and capitalisation will be key rating sensitivities. LIQUIDITY POSITION: Adequate Bank has adequate liquidity as reflected through its Liquidity Coverage ratio of 507.02% and positive cumulative mismatches up to 1-year time bucket as per the Structural liquidity statement dated December 31, 2019. Bank also has excess SLR investments of Rs.166 crore as on September 30, 2019 which remained favorable from the liquidity perspective. COMPANY PROFILE ESAF Small Finance Bank Limited (ESAF SFB) is a Kerala based Small Finance Bank (SFB) which has commenced its banking operations on March 10, 2017. The bank was promoted by Mr. K. Paul Thomas which is a part of Kerala based ESAF group operating in Microfinance space from 1995 and set up ESAF Microfinance & investments Pvt. Limited (EMFIL) in 2007. EMFIL received in principle approval from the Reserve Bank of India (RBI) to establish a Small Finance Bank (SFB) in the private sector under section 22 of the Banking Regulations Act, 1949 on Sep 16, 2015. The Bank received the final license from RBI on Nov 18, 2016 and commenced commercial operations as an SFB on March 10, 2017. On 27 Dec 2018, the bank received “Scheduled Commercial Bank” status from RBI. Its registered office is located at Thrissur. ESAF Small Finance Bank currently operates through 454 Branches and 208 ATMs spread across 17 states in India.
www.brickworkratings.com Page 3 of 6
As on December 31, 2019, ESAF Microfinance & Investments Pvt Ltd (EMFIL) held 65.63% of the shareholding in ESAF SFB while Mr. Paul Thomas holding 7.29%, ESAF Swasraya Multi state Agro Cooperative Society Ltd 4.99%, PNB Metlife India Insurance 4.99%, Muthoot Finance Ltd 4.38%, Bajaj Allianz life insurance company 4.08%, PI Ventures 2.04%, ICICI Lombard General Insurance company held 1.46% and individual investors hold the remaining. KEY FINANCIAL INDICATORS (in ₹ Cr) Key Parameters Units FY 18 FY 19 9MFY20
Result Type Audited Audited Unaud
Deposits Rs in Crs 2523 4317 6,471
Advances Rs in Crs 3155 4548 6,045
Total Business Rs in Crs 5678 8865 12,516
CASA % 9.82 12.60 12.67
CRAR % 16.87 27.59 23.43
GNPA % 3.79 1.61 1.96
NNPA % 2.69 0.77 0.69
Networth Rs in Crs 343 894 1,030
KEY COVENANTS OF THE INSTRUMENT/FACILITY RATED: Nil NON-COOPERATION WITH PREVIOUS RATING AGENCY IF ANY: Nil
www.brickworkratings.com Page 4 of 6
RATING HISTORY
Sl. No.
Instrument/ Facility Current Rating (Mar 2020) Rating History
Type (Long
Term/Short Term)
Amount
(Rs in Crs) Rating 13 Feb 2019 27 Mar 2018 3 Oct 2017
1 Fund Based Term Loans
Long Term 342.11 Withdrawn BWR A (Stable)
BWR A- (Stable)
BWR A- (Stable)
2 Unsecured NCD
Long Term 50 BWR A (Stable)
BWR A (Stable)
BWR A- (Stable)
NA
COMPLEXITY LEVELS OF THE INSTRUMENTS: Simple
For more information, visit www.brickworkratings.com/download/ComplexityLevels.pdf Hyperlink/Reference to applicable Criteria ● General Criteria ● Banks and Financial Institutions
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About Brickwork Ratings :Brickwork Ratings (BWR), a SEBI registered Credit Rating Agency, accredited by RBI and empaneled by NSIC, offers Bank Loan, NCD, Commercial Paper, MSME ratings and grading services. NABARD has empaneled Brickwork for MFI and NGO grading. BWR is accredited by IREDA & the Ministry of New and Renewable Energy (MNRE), Government of India. Brickwork Ratings has Canara Bank, a leading public sector bank, as its promoter and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.
DISCLAIMER Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons